2011 PSOY - California Savings Plus Program

2011 Plan Sponsor of the Year

Public Sector/457

Imagine a 54.4% drop in new enrollments from one year to the next. The California Savings Plus Program actually faced that daunting decline with its 457 and 401(k) plans between 2008 and 2009, as its cash-starved state government implemented a mandatory three-day monthly furlough for the majority of state employees. New enrollments dropped from 12,771 in 2007 and 13,114 in 2008 to 5,969 in 2009.

But after an extensive communications and education campaign, it started a rebound with a 34% increase to 8,000 in 2010. In talking to colleagues at other states’ deferred comp plans, “a lot of people experienced a reduction,” says Michelle Berklacich, the Savings Plus Program Administrator. “But our state employees were furloughed three days a month, which works out to an approximate 15% pay cut, so we were hit harder than the average plan. That has been a big challenge.” The three-day monthly furloughs lasted for about 18 months, through 2010.

When it can get back to its previous enrollment levels likely depends on the state’s budget situation, Berklacich says. “We are now down to a majority of state employees on a one-day furlough, so we hope that people feel like they can afford to put a little more into their future.” Overall, Savings Plus has more than 173,000 participants in its 401(k) and 457 plans, and total assets of more than $7.6 billion.

“We were trying to get them to understand that even though we were having hard times, they still have to look to their futures,” says Kimberly Weir, Savings Plus Program Manager, of its education efforts. “There is a balance of thinking about today and thinking about the future.”

Plan-design changes helped. Once the furloughs hit, Berklacich says, participants started requesting emergency and hardship withdrawals, so Savings Plus officials reduced the minimum account balance required to take a loan from $10,000 to $5,000. “The thought was that, once you take a hardship, that money is out of the plan,” she says. “If you take a loan, you are paying it back, so your final retirement benefit is not decreased.” After that change was implemented, loan activity jumped by 77%, she says

Savings Plus also began allowing participants with existing plan loans to refinance. “A lot of them had taken out loans when interest rates were higher, say 9%, and now they had dropped to 4 ½,” Berklacich says. Refinancing lowered their monthly payments; 10% of participants with existing loans have refinanced, she says, and some participants increased their loan amounts, within IRS limits. “It gave people the opportunity to get through the short-term crisis without jeopardizing their long-term retirement savings,” she says.

Plan officials also tried to convince people who wanted to stop contributing to instead reduce their commitment, so they decreased the minimum required monthly contribution from $50 to $25. “It allowed the Nationwide reps and the call center to start the conversation” when people talked about stopping contributions, Weir says. “They would say, ‘I think you can afford this. Let’s have that conversation.’” Once participants understood that the contribution is pre-tax, she says, they realized that it effectively costs them less than $25. “They just had to eliminate a couple of Starbucks trips, and they could do that,” she says.

Plans call for ending the reduced minimum contribution March 31. The loan provisions remains, Berklacich says, and participants can refinance once a year.

Along with the plan-design tweaks, Savings Plus also did more education and outreach. “We have employees throughout the state. We want to provide everyone the same [education] benefit, but it is difficult,” Berklacich says. “We have people in hard-to-get-to places.” California has about 800 state agencies at 17,000 worksites spread out over more than 840 miles. So Savings Plus beefed up its online offerings, including an enrollment webinar and a clickable state map that makes it easier for people to locate a rep of plan provider Nationwide Retirement Solutions near them to answer questions. Its 2010 efforts also included everything from holding “Financial Fitness Fairs” for employees in Los Angeles and Sacramento, to building grass-roots support by helping HR staffers around the state get out the word about the availability of 457 education.

For employees hesitant to commit to a deferred comp program, “The most successful approach has been reminding people that they need to take personal accountability,” says Craig Rudesill, Columbus, Ohio-based Marketing Director, Retirement Plans, at Nationwide Financial. “It is more important than ever not to just depend on a pension plan and Social Security. If people recognize that, it is not hard to get them to see the benefits of a deferred compensation plan. It is about getting them to accept the fact that, if they want to be financially secure in retirement, they will have to do a little more than they thought they would.”

Last year, Savings Plus launched a communications campaign with the theme “I will….” A recent banner on its Web site said, “I will…BE PREPARED,” and clicking it led to a video aimed at people within five years of retirement, offering them information on things like investment and withdrawal options for retirees.

Savings Plus participants have a defined benefit plan through the California Public Employees’ Retirement System (CalPERS), and Berklacich says the majority of the current workforce gets 2% of their highest salary at age 55 times the years of service. Most retirees also receive Social Security. Some state employees think that between their pension and Social Security, they do not need to put money into a deferred compensation plan, she acknowledges. “For a number of years, people just assumed that would be sufficient, and many still do,” she says. “An obstacle we have is to get them to understand that it is not.” So, Savings Plus added an online calculator that lets people input information, and then gives them a projection of the gap between the amount they say they want in retirement and what they are on track to get.

“Statistics show that, now, people might need 90% to 100% of their salary in retirement; 70% was the number used for years,” she says. Savings Plus does not have a specific replacement-income target for the 457, but the interactive retirement calculator helps participants gauge their needs. Plan officials also talk to these non-participants about changes in life expectancy and health-care costs, and the calculator comes in really handy with skeptics. If they do a personal gap analysis, she says, the reality “really resonates when they see it on the screen.”

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